Waiting Game Continues, Economy in a State of Suspended Animation • Markets Close Week Lower

A week after the inauguration of Nigeria’s new president- Muhammadu Buhari, the financial market has sustained a calm momentum on the back of the new president’s silence on his blueprint for the economy.
The Nigerian Stock Exchange All Share Index (NSE-ASI) tumbled 1.9 per cent Week-on-Week (W-o-W) as uncertainties bordering on key macroeconomic policy direction of the new government drag the index lower.
However, the bond market (measured by FMDQ total market index) has returned 7.9 per cent Year-to-Date (YTD) though recent trading momentum remains subdued.
Afrinvest analysts said, “additionally, foreign portfolio investors whose participation in the Nigerian market accounted for over 55 per cent from 2011 to 2014 appear to have remained on the side line amid uncertainties on exchange rate and economic reforms”.
In a related development, fuel scarcity continues to bite as long queues are seemingly becoming the new norm across the states.
“This is unexpected in our view given some marketers’ apparent reluctance to sell at regulated prices amid fears of importing at a loss should subsidy payment be officially removed. That said, we believe this remained largely hinged on the President’s muted position on subsidy payment on imported fuel”, Afrinvest said.
With over a week since his ascendency, the only noteworthy action taken by the president relates to insecurity and ending insurgency in the country. Nevertheless, analysts believe the President must set the tone for the market by making a clear pronouncement on critical concerns in the economy.
Chief among these include the oil and gas sector and subsidy removal, exchange rate and the framework for monetary policy, addressing the power sector crisis and the future of infrastructure in Nigeria.
Last week, the Nigerian Stock Exchange (NSE) sustained its losing streak, as the benchmark index depreciated 13 basis points (bps) Week-on-Week (W-o-W) closing for the week at 33,621.75 points.
In terms of daily performance, the market closed negative for three out of five trading sessions. As a result, market capitalization reduced by N14.7 billion W-o-W to settle at N11.5tn even as Year-to-Date (YTD) return further fell to –3.0 per cent. Contrarily, market activity improved W-o-W as average volume and value traded for the grew 26.9 per cent and 3.3 per cent to 309.8 million units and N3.5 billion respectively.
Afrinvest in its weekly report said, performance of the various sectors was mixed for the week. The Consumer Goods Index appreciated 0.9 per cent W-o-W against the backdrop of gains in PZ (+19.9 per cent). The Oil & Gas index (+0.6 per cent) also added points. In contrast, the Banking (-0.9 per cent), Insurance (-0.6 per cent) and Industrial Indices (-0.1 per cent) all trended southwards for the week.
Market breadth (advancers/decliners ratio) was negative, settling at 0.6x as 24 stocks advanced against 41 decliners while 117 stocks closed flat. PZ (+19.9 per cent), OKOMU OIL (+14.8%) and MAYBAKER (+14.4 per cent) were the top performing for the week, while NAHCO (-14.8 per cent), COSTAIN (-9.4 per cent) and BETAGLAS (-9.3 per cent) declined the most for the week. In the week ahead, we expect the market to continue to trade sideways in the absence of any major trigger, however some improvement is expected going forward as the earnings season approaches.
Money market liquidity last week was quite low, causing market rates — Open Buy Back (OBB) and Overnight — rates to trend high on all trading days in the week. With a liquidity opening balance of N132.4 billion and the OMO (Open market Operation) mop-up of N31.9 billion on Monday, OBB and Overnight rates settled at 11.4 per cent and 11.8 per cent respectively. Further OMO mop-up of N118.2 billion on Tuesday pushed rates higher to 13.7 per cent (OBB) and 14.0 per cent (Overnight).
On Wednesday, money market rates climbed higher, settling at 16.4 per cent (OBB) and 17.2% (Overnight). This increase in rates was consequent on Nigerian National Petroleum Corporation (NNPC)’s withdrawal that took place on the same day. Hence Deposit Money Banks (DMBs) scrambled for a total of N57.5 billion from the Standing Lending Facility (SLF). On the contrary, OBB and Overnight rates declined to 11.3 per cent and 11.8 per cent respectively on Thursday as Treasury Bills worth N330.4 billion matured, thereby increasing liquidity levels.
To close the week, rates settled at 9.4 per cent (OBB) and 10.0 per cent (Overnight).
Afrinvest said, next week it expects average market rates to trend slightly lower. This is against the backdrop of liquidity squeeze anticipated in the market as the apex bank keeps up its contractionary stance even as more bond auctions are set to hold next week.
The CBN plans to conduct T-Bills auction worth N143.6 billion this week in 91-Day (N26.3 billion), 182-Day (N25 billion) and 1-year (N92.3 billion) instruments while a total of N170.2 billion of T-bills (91-Day: N33.9 billion, 182-Day: N51.3 billion and 1-year: N85.0 billion) will also be maturing. This would imply an additional N26.5 billion liquidity injection into the system.
At the foreign exchange market, the Nigerian Interbank Foreign exchange market rate closed on Monday at N199.00/$, a five kobo appreciation from last week’s close. The local unit traded at this rate all week except Tuesday (N199.01/$). Hence, the Naira appreciated 3bps at the close of the week.
The Bureau De Change (BDC) segment of the market recorded more activity this week. The Naira traded at N220.00/$ on Monday, indicating a 1.4 per cent depreciation from last week’s close of N217.00/$. Data from the Apex bank’s website indicated that the CBN further adjusted the exchange rate peg by five kobo from the rate of N196.95/$ last week to N196.90/$. Meanwhile, this is coming after JPMorgan extended the removal of Nigeria from its Bonds index on the basis of illiquidity of the currency market by six month.

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